It may be time for individual investors to become active stockholders. Instead of waiting for corporate disclosures, particularly those pertaining to the declaration of dividends either in cash or in stock, they should know how certain events would affect their holdings. A few had expressed their sentiments to me by posing queries to which, more often than not, I do not have the answers. I need not dwell on any of these posers. Instead, I would respond to a basic question raised by an e-mailer.
It is, perhaps, safe to assume that Jose Maria Espiritu is an investor. Whether or not this his true name does not matter. The fact is understanding the definition of terms as used by regulators of the Securities and Exchange Commission and by the analysts employed by trading participants is a must for the public.
What are these terms? In an e-mail, Mr. Espiritu asked if I could explain the difference between issued shares and outstanding shares. His query led me to the PSE’s glossary, which is posted on www.pse.com.ph and which defines various market words and phrases.
In said glossary. PSE defines issued shares as “capital stock that has been sold to shareholders” and outstanding shares as “issued capital stock that is held by stockholders.” Then PSE elaborated that “outstanding shares represent the total issued capital stock less any treasury stock.”
As a concerned public, Mr. Espiritu raised a poser in connection with the recently concluded tender of ISM Communications Corp. to buy 1.2 billion shares. The tender has reduced ISM’s outstanding shares to 716,216,156 from 1,916,216,149, which meant the company’s tender attracted sellers of 1,199,999,993 shares. At P1.52 per share, which was the offered price, ISM paid P1,823,999,989 for the tendered shares.
Mr. Espiritu wondered why, despite the huge reduction of ISM’s outstanding shares, the price of the company’s stock did not increase as expected. Irony of ironies, ISM even closed at P1.43 after opening at P1.50, hit a high of P1.51and fell to a low of P1.41 on Friday, Feb. 6. ISM, according to PSE posting, climbed to a 52-week high of P2.28 and dropped to a 52-weeklow of P1.45.
Why didn’t the 62.623 percent reduction of ISM’s outstanding capital stock to 716,216,156 shares boost the stock? Honestly, I do not have the answer.
Incidentally, ISM has different postings in two websites. At www.edge.pse.com.ph, it maintained the pre-tender outstanding shares but corrected this to 716,216,156 at www.pse.com.ph. From these contrasting entries, one could presume that ISM had the wrong posting of outstanding shares on www.edge.pse.com.ph, an error that could be corrected easily. Unless, of course, ISM and PSE insiders have some valid reasons to maintain the same number of outstanding shares that existed pre-tender. I do not want to speculate on this because any kind of speculation could mislead the public.
Yet, I would ask some posers to SEC and PSE market monitoring teams: What do Eric Recto and his group, as ISM’s the majority stockholders intend to do with close to 2 billion tendered shares? Would these end up as treasury shares or would be owned by certain investors? If these would end up as treasury shares, will ISM retire them or resell them at much higher price for the company to make profit from the tender?
The answers should explain the difference between issued and outstanding capital stock or shares. As I understand the terms, capital stock is sometimes used to denote that a company has various classes of shares such as in previous pieces, I used capital stock to refer to a company’s issuance, aside from common voting shares, also of preferred shares that are further classified into voting and non-voting preferred shares.
When a company uses only issued shares or outstanding shares, it means to refer only to common voting shares. Otherwise, it would use either issued capital stock or outstanding capital stock and detail the composition by the number of common and preferred shares it has issued. To whom? The public better ask SEC people why disclosures don’t identify the outsiders who either buys or sells listed shares to company insiders.
As per PSE’s definitions, the difference between issued and outstanding capital or shares is the treasury shares, which generally could be determined by deducting the number of outstanding shares from the number of issued shares.
The public should take time in reviewing the compositions of the capital stock of some listed companies. If they do, they would be arming themselves with much more advanced knowledge that would guide them in their choice of publicly traded stocks.
Here is a caution to anyone wanting to seek the help of SEC. If they want the agency’s lawyers’ regulatory opinion, then they should ask first how much would they be charged for the information they need to know. Sadly, the SEC may be a government agency but its legal opinion is not free; it is for sale.
Finally, I thank Mr. Espiritu and others, who post their reactions to Due Diligencer, for reading The Manila Times. Keep on reading.